GAO Releases Report on States’ Regulation of PBMs

The US Government Accountability Office (GAO) addressed the measures that states have taken to regulate pharmacy benefit managers (PBMs). Focusing on 5 states—Arkansas, California, Louisiana, Maine, and New York—the GAO found rules requiring drug-pricing transparency, pharmacy access, and licensure, among other things.

What’s the Issue?

PBMs are the “middlemen” between insurance plans, drug manufacturers, and patients. It is their job to administer prescription drug benefits and help control costs.¹ However, they’ve come under recent fire for their ability to maliciously operate in the shadows to the detriment of patients and community pharmacies, which prompted the GAO’s report.

California state capitol building | image credit: Sundry Photography / stock.adobe.com

• All 5 states enacted laws regarding drug pricing and pharmacy reimbursement payments. Some of these laws limit PBMs’ ability to provide drug manufacturer rebates, which usually results in the PBMs placing the manufacturers’ drugs on favorable formularies. These laws also increase PBMs’ willingness to provide higher reimbursements to pharmacies.¹
• States enacted laws relating to pharmacy access and pricing transparency. These laws would force PBMs to establish state-sponsored licenses and prohibit PBMs to discriminate against smaller, unaffiliated pharmacies. The license requirement for PBMs would help state governments stay more on top of PBM practices and force them to report on their pricing more often.¹
• Finally, the GAO found laws requiring PBMs to focus on duty of care. These laws would require PBMs to act in the best interests of patients and beneficiaries, something that PBM opposers would argue rarely occurs.¹

Why it Matters

The GAO sat down with regulators to understand state-enacted PBM legislation. With common themes across all 5 states, the GAO reported its findings to help the population better understand common PBM practices and how they can be regulated. While federal legislation that regulates PBMs has yet to take hold in Washington, states have been conducting their own plans to regulate the pharmaceutical middlemen.

• From 2016 to 2021, prescription drug spending by private health insurers jumped 18% to $152 billion. Several researchers and stakeholders argue this is due to the predatory practices of PBMs, their ability to hide in the shadows, and their role in rising drug prices.¹
• Between 2017 and 2023, all 50 states have enacted at least 1 PBM-related law. The specific regulators interviewed for the GAO’s report talked about enforcement of PBM laws and the regulatory authority of these laws. Four of the 5 states said that broad regulatory authority would be more beneficial than specific statutory provisions. Regulators also stressed the necessity of strictly enforcing these PBM laws. They said that transparent reporting requirements would be the best way to enforce laws.¹

READ MORE: What States are Doing to Regulate Pharmacy Benefit Managers

Expert Commentary

• “The diverse landscape of state regulations on PBMs presents both opportunities and challenges for healthcare stakeholders. On one hand, it allows states to tailor regulations to their unique healthcare needs and market dynamics. On the other hand, it can result in a patchwork of rules that create compliance complexities for PBMs operating across multiple states,” wrote a group of researchers in their analysis of state-level PBM regulation presented at the 2024 American Pharmacists Association Annual Meeting & Exposition.²
• “Unsurprisingly, in nearly all areas of regulation discussed in the report, [the Pharmaceutical Care Management Association] and state health plan associations pushed back against oversight. From the state regulator perspective, the report demonstrated how widely different each state experience is, based on state law, authority to promulgate rules, and resources dedicated to PBM oversight and enforcement,” wrote the National Community Pharmacists Association in response to the GAO report.³

In Depth Insights

At the 2024 American Pharmacists Association Annual Meeting & Exposition, researchers presented their analysis of state-level PBM regulations. The study authors explored state regulations regarding reporting requirements, pricing transparency, patient access and protections, anti-steering provisions, and audit integrity.²

• Like the 5 states in the GAO’s report, Pile et al found that many states have enacted laws that require greater PBM transparency for prescription drug pricing and enhanced patient access to prescription drugs, while some states have imposed reporting requirements.²
• “[Our analysis] underscores the need for ongoing research and collaboration among states to optimize the regulatory framework governing PBMs and promote transparency, affordability, and equitable access to prescription drugs in the healthcare system,” wrote the authors.² As both reports show, state regulation of PBMs will be most successful if states work together and introduce similar requirements to curb PBM power on a national level.

Extra Reading

• Pharmacy Middlemen Need Robust Oversight, States Tell GAO (Bloomberg Law)
• State Regulations For PBMs May Prove More Useful Than National Legislation, GAO Report Finds (American Health Law Association)

References

1. Prescription drugs: selected states’ regulation of pharmacy benefit managers. U.S. Government Accountability Office. March 18, 2024. Accessed April 19, 2024. https://www.gao.gov/products/gao-24-106898

2. Pile T, Atkinson A, Ali M, et al. Prescription for reform: a comparative study of state level regulations on pharmacy benefit managers. Presented at: American Pharmacists Association Annual Meeting and Exposition; March 22-25; Orlando, FL. Poster 1286.

3. GAO looks into PBM regulation. National Community Pharmacists Association. April 17, 2024. Accessed April 19, 2024. https://ncpa.org/newsroom/qam/2024/04/17/gao-looks-pbm-regulation